Stocks to Avoid Now?

If you're thinking of selling your stocks, you're not alone. According to insider tracker Form 4 Oracle, executives at these three firms cashed in shares last week:

The week's selling

Company

Closing Price 5/11/09

Total Value Sold

52-Week Change

CEC Entertainment (NYSE: CEC  )

$31.20

$290,750

(20.6%)

Southwestern Energy (NYSE: SWN  )

$40.02

$4,630,590

(8.9%)

Steel Dynamics (Nasdaq: STLD  )

$12.77

$3,406,056

(62.3%)

Sources: Fool.com, Yahoo! Finance, Form 4 Oracle.

Insiders sell for many reasons, ranging from compensation to estate or tax planning to just plain getting out, but they rarely (if ever) share their reasons. That said, these are open-market sales, made by executives who have 100% control over the timing of their trades. Not so at First Solar (Nasdaq: FSLR  ) , Moody's (NYSE: MCO  ) , and Amazon.com (Nasdaq: AMZN  ) , whose insiders have mostly been cashing in on a predetermined schedule known as a 10b5-1 trading plan.

Firms typically find their way here because those selling either (a) exhibit good timing, or (b) are dumping significant portions of their stakes. Volume, more than timing, is the issue regarding Southwestern Energy's insiders.

Chief Accounting Officer Stanley Wilson sold 15,000 shares last Monday. Board member Kenneth Moulton parted with 96,000 shares two days later. In all, the two executives pocketed more than $4.6 million in proceeds.

Are they cashing in at a good time? That's debatable. Last month, Southwestern copped to a first-quarter loss on a large impairment charge related to lower natural gas prices, The Associated Press reports. The good news: Prices have recovered more than 30% from their late April lows.

Nevertheless, Foolish investor APJ4RealHoldings, an All-Star member of our 130,000-strong Motley Fool CAPS community, expects the bad times to continue. "Sold short SWN today in real life portfolio @27.65/share," he wrote in March. Southwestern's rising share price in the two months since hasn't been kind to his CAPS score.

Chuck's cheesy
More troubling is the news from CEC Entertainment, home of the pizza-rat hideout kids call Chuck E. Cheese's. Management blamed the swine flu outbreak for a 20% decline in same-store sales during the first three days of the final week of April.

Is that really possible? Hysteria can take many forms, and it's possible that pizza-craving parents suddenly became shut-ins -- but I doubt it. Were it so, you'd expect the Pizza Rat's traditionally strong birthday-party business to fall off a cliff. Instead, CEO Michael Magusiak said that birthday-party cancellations were not material.

To be fair, CEC's first-quarter results beat analyst expectations, as operating margin improvements more than offset a 0.1% same-store sales decline. Even so, the majority of those who follow the stock in CAPS remain unconvinced:

Metric

CEC Entertainment

CAPS stars (out of 5)

*

Total ratings

83

Percent bulls

66.3%

Percent bears

33.7%

Bullish pitches

5 out of 11

Data current as of May 11, 2009.

"CEC is better known for its games than its food," wrote CAPS All-Star kristm last summer, "but most companies in the arcade/gaming business are going away because families prefer to play games over and over for free on their home game console or computer. If they had room for something more active like, say, a go-cart track -- but they don't."

Fair point. Console makers and game publishers such as Activision Blizzard (Nasdaq: ATVI  ) are profiting handsomely from in-home entertainment. Meanwhile, CEC's insiders are selling. Executive Vice Presidents Randy Forsythe and Gene Cramm last week sold off meaningful chunks of their direct holdings. Cramm, in particular, parted with 22% of his direct stake.

There's your update. See you back here next week for more stocks you should avoid.

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Fool contributor Tim Beyers also writes for Motley Fool Rule Breakers. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out his portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool.

The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is the undisputed heavyweight champ among disclosure policies.


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